INSURANCE AND ASSURANCE

SCENARIOS: WHAT INSURANCE COULD

HAVE PROTECTED CLIENTS IN THESE
SITUATIONS
• Amy loves riding her bike, but one day, she falls and breaks her arm. Her
mom rushes her to the hospital, where the doctor confirms the injury. Amy’s
mom is worries about the medical bills.
• Sam’s house suffers severe damage from a sudden storm. His neighbour, who
also experienced damage, didn’t have insurance and faces financial ruin.
• Ella wakes up one morning to find his car missing form her driveway. She
reports it to the police.
 DEFINITION OF INSURANCE

A contract in which one party agrees to pay for another party’s financial loss
resulting from a specified event.
 DIFFERENCE BETWEEN ASSURANCE AND
INSURANCE

• Assurance is a contract between an insured and an insurer to protect against

risks that are inevitable (bound to happen)

• Whereas

• Insurance is a contract between the insured and an insurer to protect against

risks that are unforeseen (may not happen, unexpected)
 DIFFERENCE BETWEEN INSURABLE RISKS
AND UNINSURABLE RISKS
• Insurable risks are risks that can be assessed in value because there is data which can be used to
calculate the probability that such a risk will occur. For example: Fire, Earthquakes, Hurricanes

• Whereas

• Uninsurable risks are risks that cannot be assessed or the probability of that event occurring
cannot be calculated (against law). For example pandemic risk, reputational risks (anything
that changes the perception of the organization), political risks (investors/investors may suffer)
 THE INSURANCE PROCESS

• Insurance is provided by:

• i. Insurance Companies - businesses that provides coverage, in the form of compensation
resulting from loss, damages, injury, treatment or hardship in exchange for premium payments.

• ii. Friendly Societies – a mutual association owned by its members who provide insurance
and other benefits
•
• iii. National Government through the National Insurance Scheme
 DIAGRAM OF THE INSURANCE PROCESS

• NB: Underwriters – a person or company who evaluates risk and provides risk coverage

• Explanation
• i. Prospectus – leaflet or document used to advertise or give details of policies
• ii. Forms that tell the insurance company what risk(s) the person buying proposes to insure against
• iii. Premium – the charge by the insurance company for their services
• iv. Policy – the document showing the contract or agreement
 OTHER DOCUMENTS ISSUED WITH THE
POLICY

• i. Certificate of Insurance – evidence that the insurance has been put

into effect
• ii. Cover Note – temporary document provided whilst the certificate of
insurance is being prepared
• iii. Endorsement – notice of an amendment to the policy
• iv. Renewal notice – invitation to the insurer to renew the cover note and
advising the renewal of the premium and the date due
NB: The Claim Form – form submitted by the insured to the insurer
 HOW INSURANCE FACILITATES TRADE

Business persons can take more risks when they are able to recover losses if
the business fails or there is a disaster. Insurance lowers the risk associated
with business.
 PURPOSE OF INSURANCE
• To provide compensation to those who suffer a loss
• To put persons back in a position they would have been in
• To promote trade – risk taking
• To relieve individuals and businesses from some risks or burdens they face
 PARTIES OF INSURANCE
• The insurer – the insurance company
• The insured – the person to be protected
PRINCIPLES UPON WHICH INSURANCE IS
BASED
These are the rules or principles by which insurance companies are guided by.
• Pooling of Risks
• Insurable Interest
• Utmost Good Faith
• Indemnity
 POOLING OF RISKS
Various persons of same insurance contribute a sum of money (premium) to a fund
(pool). When a contributor suffers a loss he or she is compensated from that pool
 INSURABLE INTEREST
• The chance of suffering financially if an event occur must be directly related to the
insured
 UTMOST GOOD FAITH
Parties must be truthful in the supplying of information and in the declarations
made
•
 INDEMNITY
A policy holder is compensated for the loss incurred and is put back into the
position he or she was in before the loss or damage occurred
 ASPECTS OF INDEMNITY

• No profiteering – any monies received in compensation should

not be geared towards making a profit
 ASPECTS OF INDEMNITY
• Subrogation – means ‘takes the place of’. If the loss suffered
and the item is too badly damaged to be repaired, the monies
paid by the insurance company takes the place of the item and
the insurance takes the damaged item
 ASPECTS OF INDENITY
Contribution – in cases where there is ‘over lapping’ of policies (one event covered by two
companies), each company is liable to pay the proportion in the amount of insurance placed
with each company
 ASPECTS OF INDENITY
• Proximate Clause – insurance policy may cover a particular risk that is not
directly related to the terms of the contract but closely related to the original
event
 ASPECTS OF INDENITY
• Over Insurance – if the insured overs insures an item ( more than the true value) he or she will only be compensated for
the true value. You will only be compensated fro the value of property, resulting in losses.
Ways you can be over insured:
• Overlapping of insurance policy
• Pay more than necessary in premiums/policy that covers much more than the cost.
What can be done:
• Adjust your coverage (reduce policy amounts, cancel unnecessary policies and cut redundant coverage.
• Bundle your insurance (earns a discount when purchasing more than one insurance)
• Shop around (compare policies)

*The insurance company may have a clause to deal with such situation

• Under Insurance – if the policy holder undervalues the item. In the event of a loss he or she will be compensated for the
amount paid against the claim. For example of Mr. J claims for 20,000 damages to his house. He insured the house for 80,000 but it is
worth 100,000. He would receive a percentage payment based on the undervalue amount, that is, 80,000/100,000.
 BRANCHES OF INSURANCE OR TYPES OF
INSURANCE POLICIES
1. Life Polices
(a) Life Assurance

2. Non-Life Policies
(a) Marine
(b) Motor
(c) Business
(d) Fire and Accident
 LIFE ASSURANCE

• I. Life Assurance – a contract between a policy holder and an insurance

company where the company promises to compensate a beneficiary upon death of
the insured

• NB - Beneficiary – a legal entity who receives money or benefits from a

benefactor
• - Benefactor – a person who gives some form of benefit to a person, group or
organization
 TYPES OF LIFE ASSURANCE

• Term Policy
• Whole Life
• Endowment
 TYPES OF LIFE ASSURANCE
* POLICY: CONTRACT BETWEEN THE INSURER AND INSURED.

A premium is paid for a period of time, typically 10 – 30 years. If the person paying the
insurance dies during that time, a cash benefit is paid to your family/beneficiary.
 WHOLE LIFE/PERMANENT POLICY
(a) Whole Life Policy – a policy that provides compensation upon the
death of the insured. Its called whole life simply because it provides coverage
your entire life.

Most whole life policies endow at age 100. When a policy holder outlives the policy, the insurance company
may pay the full cash value to the policy holder and close the policy.
 ENDOWMENT POLICY

Can act as a savings as well as an insurance cover

 TYPES OF NON LIFE

• Motor
• Business
• Fire
 MARINE INSURANCE
POLICY THAT COVERS LOSS OR DAMAGE TO SHIP OR CARGO

• Types of Marine Insurance

• (a) Hull (Body) Insurance – covers damage to the vessel itself and all its
machinery and fixtures
• (b) Cargo Insurance – covers the load the ship is carrying
• (c) Freight Insurance – covers the possibility that the shipper does not pay
the ship owner to transport the goods
• (d) Owner’s liability – covers the owner, crew and passengers against events
 MOTOR INSURANCE
A CONTRACT WHICH PROVIDES COMPENSATION FOR LOSS TO THE OWNER’S VEHICLE, DAMAGE TO PROPERTY AND OTHER’S PROPERTY

• (a) Third Party – a policy that insures the liability for damage to other
people’s vehicle and their property

• (b) Comprehensive – a policy that is inclusive of third party and also

provides compensation for damage to the vehicle of the insured
 BUSINESS INSURANCE
INSURANCE COVERAGE THAT PROTECTS BUSINESSES FROM LOSSES DUE TO EVENTS

• (a) Liability – covers the risk or loss or the injury of someone else

• Types of Liability
• i. Employer’s liability – covers loss or damage or injury of workers during the course of business

• ii. Public Liability – covers individuals and members of the public visiting the premises

• (b) Property – covers the building and items or its contents

• (c) Credit – covers losses resulting from bad debt; failure of customers to pay for goods taken on credit

• (d) Fidelity – taken out to protect against loss by fraud and stealing by employees

• (e) Business Interruption or Consequential loss – provides coverage for losses as a result of business being suspended and or loss of earnings
 FIRE AND ACCIDENT
POLICIES THAT COVERS MAINLY FIRE, COMBINED WITH OTHER RISKS, THEFT,
STORM, FLOOD ETC.

• Type(s) of Accident Insurance

• (a) Personal Accident and Sickness – policies taken out against death or
disabilities resulting from special circumstances (plane crash, camping trip
etc.)